Amazon

Sunday, April 15, 2012

SPX, RUT, Apple, and Beard Updates: Why I'm Not in the Same Camp as Most Wavers Right Now

Beard Update

Ever since this article, where I discussed my ground-breaking decision to venture into the beard-bearing biosphere of Ben Bernanke (by not shaving), I have received e-mails from anxious readers demanding beard updates on an almost-hourly basis. For example, this recent letter comes to me from Little Bobby of Arizona, TX:

Dear Mr. Logic,

Or should I call you Pretzel? Whatever -- just please don't refer to me as "little" Bobby if you publish my letter. I saw you did that to that other guy. I am 6'8", a linebacker, and I have a really bad temper.

Anyway, I'm currently working on my economics degree at Texas Arizona University in Arizona, TX, and I aspire to one day be Fed Chairman. While I appreciate your market updates, I'm really more interested in updates on your beard. I'm wondering if you think I should grow my beard immediately, or wait until after graduation? Is there any downside?

I'm thinking I should grow a beard now, and study the Great Depression.

Thanks for your help,

"Little" Bobby Spankle, Starting Linebacker, TAU

Well, Little Bobby, I'm glad you asked, because I've just been "itching" to provide an update on the beard. Ha! Itching! Get it? That's just a warm-up into some of the first-class humor I'll be providing throughout this entire paragraph.

I'm sorry to make light of your serious question. I know I'm the envy of every man right now, sharing a beard with Bernanke... but, not surprisingly, there is a dark side to this beard. For example, many days I wake up with an almost-uncontrollable urge to print money. Barely a week ago, I awakened from a fugue state to discover I'd printed almost 20 million dollars using only my inkjet.

Luckily, I've been able to control these urges by plastering Ford-era W.I.N. buttons ("Whip Inflation Now!") all across my workspace.

But there are other side effects. Yesterday, I tried to call my wife "Cutie-pie," but it kept coming out "QE-pie." Try as I might, I couldn't say anything else, and I found myself repeating it uncontrollably: "Hi QE-pie. Hi QE-pie!" I felt like Leonardo DeCaprio at the end of the movie The Aviator.

I'm telling you this as a warning, because today I realized what the problem was. Initially, I had kept the beard close-cropped and above the neckline -- but over the past couple weeks, I'd gotten lazy. When I looked in the mirror today, I saw that the beard had expanded completely unchecked and grown to an alarming thickness, not unlike Michael Moore. It was now reaching down across my neck, threatening to overtake my throat and choke the sense out of me. I also discovered about eight gray hairs.

Its tranformation was nearly complete. The beard was trying to take over my face, and if I didn't act quickly, it would soon claim my soul.

I sprung, or possibly "sprang," into action. After subduing the beard with a hot towel and a hammer, I was able to gain the upper hand long enough to use my electric razor to trim off half an inch "across the beard." After that, its control was weakened enough that I was able to use my Gillette to shave off the entire portion beneath my jawline. Enough beard remained that I still ran out of the bathroom and handed each of my kids a hundred dollar bill... but the urge to print money was gone!

Later, as I rinsed out the sink, I heard what sounded like hundreds of tiny, high-pitched voices chanting. They were progressively fading in volume as they washed down the drain -- but as I shut off the faucet, I was just barely able to make out their faint words as the last whiskers spiralled down: "Crush the dollar!"

Actually, Little Bobby, I just remembered: you want to be Fed Chairman! Forget everything I wrote... the beard is perfect for you.

Market Update

Moving onto the charts, the market has left a lot of potentials open, and I hope it doesn't get too confusing for readers. I've spent literally the entire weekend trying to sort out one from the next, and I'm reasonably confident in both my short-term and longer term preferred counts.

I have outlined the alternates because, despite all the time invested, there's never a guarantee that the preferred count's right. And this is a game of inches right now -- so it's easy to see one or more alternate coming to town.

The possibility of an (x) wave, while purely speculative, gives me a bit of pause in simply declaring the correction over without further consideration. I could go the straight line route and pretend it's not a possibility, but I've seen these things happen too many times after extended fifth waves to blissfully ignore the potential. Nevertheless, I do consider the (x) wave to be the underdog here.

The correction did form a complete a-b-c, and that's all it was required to do. Trying to predict an (x) wave is akin to trying to prove the existence of dark matter -- there's little evidence for it before hand (except possibly in real-time, which no longer fits the dark matter metaphor... quit being so literal!).

At this point, I'm favoring the view that the (x) wave will probably not materialize, but I think it pays to be aware of the potential, because then bears get double credit, income-wise -- and at the same time lower their risk profile.

Of course, no one wants to leave money on the table if this is now the fifth wave decline.

So, the best odds at this stage will probably come from watching the red downtrend line shown on the charts below. If the market sustains trade above that trendline, then it becomes more likely that the (x) wave is in play, and will go on to make new highs for the correction. Luckily, this means that even the most passive swing trader who went short at the 1384 rally target presented last week should be able to guarantee a profit. More aggressive traders can find other ways to lock-in profit.

Long-time readers know that I try to assimilate as many factors as possible into my analysis, to help sort one count from another. To this end, the timing of a fifth wave (instead of an (x) wave) seems to fit well into the seasonality.

The markets get a gift in the coming week. Depending on how strong tax receipts are, the Treasury will pay down as much as $48 billion in expiring short term bills on Thursday. That’s cash that will come back to holders of the paper. They’ll have to put it somewhere. This is a normal feature of tax week, and some of that cash usually flows toward stocks. Tax receipts are looking a little stronger than last year, so that the paydown is likely to be substantial even if it isn’t quite $48 billion. That should be enough to put a bid under stocks by Thursday if not before as the dealers and other holders begin to anticipate this cash hitting their accounts on Thursday.

Last year the S&P gained about 56 points in the 7 days following tax day.

This would fit the fifth wave count extremely well, as it is likely to bottom this week -- and from there the market seems likely to embark on the larger 2nd wave retracement rally to match the seasonality.

Of note, this seasonality does also fit the bigger picture alternate count of the larger wave (iv) bottom, so this is yet another reason for bears to be cautious.

After studying the charts this weekend, and giving consideration to as much additional data as I could, I am favoring the fifth wave decline over the (x) wave and wave (iv) Do remain alert to those potentials, though -- because the market often does the unexpected despite our best efforts.

The chart below shows the preferred count as represented by the blue lines. The pink count is the short term alternate. The gray count is the 2nd alternate.

Also be aware that if the b-wave low isn't broken by this wave down, bulls could launch an even stronger counter-attack... in other words, something even more bullish than anything shown below -- such as the larger wave (v) rally discussed later.

If the market continues down strongly at Monday's open, then the pink count above may actually be the correct short-term interpretation. The chart below shows why I'm favoring the blue count, but I'm almost equally split on the two. I'm favoring the blue count by maybe a 5-10% margin.

If the blue count is correct, it's difficult to gauge how much, if any, downside is left to that wave. It would look better with some kind of correction and a slight new low -- but if one counts all the little squiggles, then there's already enough for it to be complete.

I'm not sure exactly where to place the assumed wave (2) target, because I'm not certain if (1) has bottomed. Expect (2) to retrace between 40-60% of (1). If a snap-back rally materially exceeds the 62% retrace, then we may be facing one of the alternate counts.

Now let's back off a little, and examine the larger time frame, to see how the market could find support soon, to match my expectaton that this is the fifth and final wave of the decline before a larger correction.

Next are the RUT charts, both short and long-term. The 5-minute RUT chart contains critical data I want to discuss in more detail.

Many Elliotticians whose work I respect are labeling the decline as ALL OF wave (i) down. But based on the RUT, that count doesn't work. This chart reveals exactly why I do a lot of market cross-studies before deciding on a count (I don't mind revealing my "secret" -- because my secret is simply hours and hours of additional hard work each day. Anybody can do it! Though to be fair, I imagine it's more difficult for people who have day jobs.).

This is also why I've prepared the battery of longer-term charts to help illustrate why the markets could find support very soon (if they haven't already).

The preferred count is shown in blue on the chart below. The short-term alternate is shown in pink -- and again I'm only marginally favoring the blue short-term count over this count. The intermediate term alternate (of either (iv) or (x)) is shown in black.

Long-term support is also nearby on RUT.

NYA likewise demonstrates why it could find support soon. We looked at this pattern a few articles ago.

Same goes for the Nasdaq Composite.

Of course, the market's not entirely predictable at all times, and the more bearish potential that most wavers are favoring can't be completely eliminated. Based on the patterns in RUT and others, I view the super-bearish potential as significantly less likely, but not impossible.

There are pretty good-looking head and shoulders patterns forming in many markets... I suspect, however, that another bounce is needed before that pattern is fully complete. The INDU chart below shows why -- as it sits right now, the right shoulder would be very narrow relative to the left shoulder. And, as discussed, the more immediately bearish count doesn't fit the wave structures across markets nearly as well.

Still something to be aware of, though I would assign low probability to it. The more bearish alternate count is in black.

And of course, the more bullish side of that coin looks like the alternate in the chart below. I don't think I've missed a short-term call in a couple weeks, and I always get a little worried for my readers after a long winning streak, because it tends to breed complacency. The market isn't "supposed" to be perfectly predictable, and eventually I'll miss some calls -- that's just how it goes, so please make sure you take precautions in order to be protected whenever the misses come.

There are two big picture alternates shown below. The first is that wave (i) bottomed already (low probability, for reasons discussed), and the second is that wave (iv) bottomed. The wave (iv) count is still quite high risk to bears.

As I said earlier, this is a game of inches right now -- in other words, it wouldn't even take a big miss to see an alternate potential play out.

Finally, since Apple is "the Economy" these days, it does appear that Apple may have finally put in a top of some significance.

I've also added a quick and dirty US Dollar chart. A triangle breakout in the dollar might suggest some hope in the more bearish equities counts -- if it occurs with conviction. If the dollar can put together a strong rally, then that's likely to cap any equities rallies. Of course, it has not broken out yet, and can always form another leg down before a breakout. Or not breakout at all. We'll factor this into the equities analysis if and when it occurs.

I've labeled the chart with a potential wave count, but my confidence in this count is marginal.

In conclusion, it does appear reasonably likely that there's one more decline to at least marginal new lows below 1357 still coming. Again, the first SPX chart, and the first RUT chart show the preferred count in blue.

With the short-term counts, I'm trying to sort fly droppings from pepper here, so it's probably more important to focus on the bigger picture than the 1-minute "is this (3) of 5, or (1) of 5?" charts I've presented alongside it. I'm simply trying to help readers maximize their awareness and earnings.

Looking at the big picture, one can see I'm not currently part of the mega-bearish camp that believes we're entering a larger third wave down. I think this wave is close to a bottom, assuming of course that it didn't bottom at 1357. Depending on the structure laid out by the market in the next few sessions, of course, my outlook may change.

As of this moment, however, I believe bears should exercise caution, because the assumption is that this will be the final decline before a larger snap-back rally. The (x) wave adds confusion to the potentials, and should definitely be watched carefully. The key levels to watch are the red trendlines, and the recent highs on SPX and RUT. If the market makes it back above those levels, shorts should probably get out of the way for the time being -- especially with the possibility of the big picture alternate count taking us up to new highs in a larger wave (v).

But if the overall view is correct, there should be another 20-40 points of downside left on the SPX first. Trade safe.

255 comments:

The Beard Update part was fun. I wrote that Friday night. I've been working straight through since, and so now I'm going to run, screaming, from my computer. I'll be back later tonight (for me), early tomorrow morning for you. :)

The only thing I have ever found volume useful for is identifying support and resistance levels. I think it's interesting to look at volume at times of moves, and at the end of moves too, to see how strong the move began and how much resistance/support there is at the end of the move, but I don't really know how to turn that into a useful projection.

Don't bother. I already read it for you, and it makes perfectly good sense. I have to admit though that I didn't get the part about why it's better to use whole wheat flour instead of white all-purpose flour for making 'white' bread. That part kinda went over my head. Other than that, it's very easy to follow. Thanks again Mr. P.

El posto excellente. Eyem not sure if it was a typo, but "choak" got stuck in meye throte. Maybe cuz my taxes have been so taxing....I hate writing checks that might be used to prop Snaapl....going to bed before I get woken up in an hour by a bright eyed, 38" tall redhead who wants his Cheerios.

ES has done a pretty clean backtest of the old downtrend line (pink). There's a bit of a potential channel down between the recent highs and the old downtrend line. Some ST overhead resistance in the 1370-74 zone.

ConsiderKatzo Attorneys and Associates ~ The Best and Most Sensitive AroundAssociates ~ Katzo Kazialinsky (Russian Mob), Vinnie Piella (collection agent), Bubbles Phelan (secretary. she cannot type but she sure can dance. . . )While we may not win your case, we will make you feel the best about screwing you out of your money !free coffee

Just got done with third read of article. Closed Friday's put position in SPY, now left with longs to see if we hit the blue box count and I have great confidence that it will go there. AAPL April 600/585/560 put butterfly trade paid 4 to 1. I do not know how you do what you do day and out but I sincerely appreciate it. The article was a great read and following your analysis has helped my trading confidence levels tremendously. Gotta get back to work and get busy with the duct tape.....

It does fit my notion of this 4 month explosion as a 3rd wave. I can see new highs for Apple at all this, maybe at the end of the year, maybe at 680? How do you feel this count compares to PL's where the last 4 months was a 5th wave? -DD

Is anyone else having a deja vu feeling the past hour? the market has been stuck in this narrow range, kind of reminds me of Friday, until 3:45 of course. Is the same thing going to happen again? Calling PL and Katzo, is a redux of Friday coming? Roger!

Max, "PL's (2)" happened at the gap open. Pretty easy to see on this chart which has been updated only with a few arrows. The open surprised me a little, because futures were actually down when I published the article -- but as I said in the article, there were already enough squiggles to count wave (1) as possibly complete.

The alternate (x) wave is still alive and kicking. And the alternate count for (2) would be that the morning was wave-a, this is wave-b, and we'll rally back up in wave-c to form (2). That seems somewhat less likely, though.

Max, "PL's (2)" happened at the gap open. Pretty easy to see on this chart which has been updated only with a few arrows. The open surprised me a little, because futures were actually down when I published the article -- but as I said in the article, there were already enough squiggles to count wave (1) as possibly complete.

The alternate (x) wave is still alive and kicking. And the alternate count for (2) would be that the morning was wave-a, this is wave-b, and we'll rally back up in wave-c to form (2). That seems somewhat less likely, though.

If the blue count is correct, it's difficult to gauge how much, if any, downside is left to that wave. It would look better with some kind of correction and a slight new low -- but if one counts all the little squiggles, then there's already enough for it to be complete.

Basically, if I "celebrate" victory, it's because the preferred count nailed it. If one of the alternates hits, well, I'm always happy to have seen the possibility, but it's not the same as sorting through them all and picking the "right" one as the preferred count.

I'm sorry if you found the sheer number of alternates confusing, but I did state at least twice in the article that the blue lines represented the preferred count.

Anyway, I don't see how I could have hit it any closer today, especially given the ambiguity of the charts. There's at least 18 hours in those charts this weekend, and I'm pleased when that time investment pays off. Hopefully it paid off for you guys, too.

(2) topped dead-on where I suggested it would. The main thing I was unsure on was whether (1) had bottomed or not -- but I did realize, and note in the article, that it may have bottomed on Friday. Turns out it had. I don't think it's humanly possible to get any closer than than that, with the market closed... *and* call the 2nd turn that close when the first turn hadn't even happened yet, and futures were down when I published.

It's friggin' stressful trying to sort "fly droppings from pepper," as I put it in the article. It's a big relief when it works anyway.

yeah, that's cool -- sometimes i probably seem like i'm being a pain in the ass...but i focus on the smallest subwaves and try to reconcile them before feeling too good about a count. Today's open didn't really mesh for me with your preferred count. Of course, i could be totally wrong (and will pay the price if i am). but yeah, i wasn't sure you were referring to your preferred count...probably a function of my being new to this blog. Good Luck!!

Question: EW's rule of alternation. Wave 2 within the $RUT is a simple correction a-b-c and wave 4 within the $RUT is a simple correction a-b-c. Any reason for concern.....allowable under EW guidelines?

Despite figuring out that the first wave down looked roughly complete and was due to bounce, I'm not thrilled with the pattern since then. Not sure exactly what to make of it, so stay on your guard here.

its starting to look like blue wave 4 is still goings ince the wave 3 bottom on the 11th. the first abc could have just been the a ending on the 13th. then down for abc which was just the b ending this am. and back up for another abc to end blue wave 4 this week. seems awefully big, but have heard that wave 4;s often break the channel, which this is def doing. also, many noted that wave 4 didn't even retrace 50% and they were expecting 61.8. maybe will do so, but that would bring us back to low 1390ish. also a=c in that scenario also measures to there. any thoughts?

timing is running out for this drop, I like it when it starts about 2:30 to 3 pm. When sideways extends this long into the close it means potential tgt is limited, maybe we go back to where we started (DJIA up zero) if lucky.

Woman to May West "my goodness, those diamond earnings are beautiful, you must be very lucky."May West replies "darlin,' goodness had nothing to do with it."

Hi Dust Dev, re AAPL, still dropping as I write. I expect it to stop at 577 which is Kumo2, the bottom of the Cloud on a 1/2 day chart. Stochastic Mom Indic is minus 79 consisitent with a bounce 'real soon now'. Looks like a 4th to me at the moment but if the facts change, I'll change my mind ;)

Good evening DM. If it is a diagonal it probably ought to be labeled '1' (up) 2345. A triangle is usually labeled 'a ' (down) bcde with a 5wv (12345) thrust up from 'e'. There is some overlap in counting these but F&P's book defines them well. Good luck ;)

Doesn't seem very wave 3 impulsish to me. But what do I know? The market seems hell-bent on going no where on no volume, even into the close here. Fits with a bear picture maybe... Big players unwound some of their big positions Friday into the closer (bigger transactions, more volume), and are still unwinding them, albeit more slowly, now at some support levels.

There is a guy by the name of Ramki.....he's like PL in that he has over 25 years experience and he wrote a small book $9 I believe. Covers all the important parts of EW. He's not as active as PL on a daily basis, more long term strategies....but his ebook is worth it. http://www.wavetimes.com/buy-five-waves-to-financial-freedom-book/

Read it and then come back here.....I've seen no one that can hold a candle to PL.

Right Bob. Months back, I recommended this ebook to people here also. Very practical and simple kind of application of waves. Months back, he predicted the highs that we arrived at now just based on simple wave calculation. Sometimes seeming naivete works best. -DD

I was primed to take profits here today after seeing the futures down late last night. Expected some kind of weakness this morning. Then, Murphy stepped in and it looks like I'll have to wait a day or so. Todays action looks like Wave 2 of the fifth wave in wave 3 down. If I don't get some downside action tomorrow, I'll head for the exit.

Hey PL. I saw your comments this morning that wave (1) could be complete and then the gap up certainly could have been wave (2). Just wondering, in this specific instance, at what point did you get comfortable enough to know that it was in fact wave (2) and it had completed. My trouble as a newbie, is recognzing this real time with enough confidence to pull the trigger. Thanks.

High maintenance is right! She's been giving me heart attack all weekend. Finally broke up with her this morning (closed out the VIX contracts held over the weekend); but then we ended the day hooking up again when I sold some more VIX contracts. It's a love/hate relationship.

The market is prepared for an ugly Spain bond auction in morning it seems.. can easily reverse but seems everything is all hedged up.. Vix closing near high of just under 20. 10 yr treasury under 2%. could flash down if bad or flash up if good.. Are you feeling lucky?? :)

katzo, you're calls have been great. just getting used to your wave markings on your charts. if i read your chart right, it looks like the next move is another abc up for C. my target for that would be around 1386. you mentioned a down day tomorrow, am i reading your chart right?

Thanks PL. The market has tomorrow and Tuesday evening to take the VIX up to 25 strike price. I don't think that would happen unless there were a Black Swan event (more than a solid 250 drop on the Dow in my opinion).

There really seems to be no set pattern. I've seen 3rd waves wind up real slow, and I've seen 'em go real fast. It's pretty common to see a 3rd wave build a nest of 1's and 2's that looks like a correction/consolidation before the big down (or up) hits.

If VIX shoots up, I would sell April strike calls that are greater than strike of 30. Wednesday is expiration. As I mentioned in my response to PL, I do not think VIX would be higher than 25 (knock on wood) by Wednesday morning unless there is a significantly extreme drop in the market. I took a greater risk by selling April strike 25s, but April strike 30s were just not worth anything at today's close.

Free Copies of Each Post by Email

Real-Time Streaming Quotes

Pretzel's Amazon Store

Pageviews

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, including, but not limited to: forum comments by the author or other posters, articles and charts, advertisements, and everything else on this site, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment advisor before making any investment decisions.